Browsing by Subject "Econometric analyses"

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    International agricultural price transmission and its implications for iomestic markets
    (2016) Yang, Fan; Brockmeier, Martina
    International agricultural price surges in 2007/08 and 2010/11 appeared to undermine the global food system from diverse sources. Soaring agricultural prices may exacerbate food availability for net food buyers in low-income countries. In response, governments in these countries implemented either border or domestic policies in order to stabilise domestic food prices. The contentious impact of these policies on the international agricultural price transmission is often assessed in the literature by applying CGE (Computable General Equilibrium) models. Among the various comparative static general equilibrium models, the GTAP (Global Trade Analysis Project) model is extensively used in policy analyses given its broad data coverage and firm economic assumptions. However, the setup of the standard GTAP model does not fully account for the variations in international agricultural price transmission, causing the simulation results to deviate from the empirical findings derived from econometric analyses. Therefore, the primary focus of this thesis is to enhance the realism of the CGE framework in analysing the international agricultural price transmission and its implications for domestic markets by associating econometric analyses with the standard GTAP model. Against this background, the thesis includes three articles either published or submitted to peer-reviewed journals in addressing the following objectives: (1) to identify the determinants of food price transmission from the international agricultural market to domestic markets; (2) to exploit the impact of border restrictions on food price transmission, accounting for variations in domestic margin services in different countries and regions; and (3) to investigate the impact of increasing agricultural domestic support on China’s domestic market, given the imperfect food price transmission caused by border policy adjustments. Applying econometric time series analyses, our first article identifies and evaluates the determinants causing variations in food price transmission, i.e., a country’s income level and its market integration indicators. The result underscores an inverse relationship between income levels and the price transmission elasticities from international agricultural commodities to domestic food products. The major reason is that a large part of consumed food consists of a high share of domestic margin services e.g., transport, food processing services and retailing. Their share in consumed food is greater in high-income countries, implying a lower price transmission of price shocks to final consumers in these countries than in low-income countries. Following the theoretical development in the first article, our second article extends the standard GTAP model by quantifying the value of domestic margin services in the private household consumption. Thereby, the extended model is able to reflect the price insulating impact by domestic margin services, leading to a weakened magnitude of price transmission from international to domestic markets. The impact is more pronounced in high-income countries, consistent with our previous findings. Furthermore, we demonstrate how the model extension improves the simulation results in analysing impacts of trade restrictions on food price transmission. Our results show that export restrictions implemented by major grain exporters enable these countries to insulate domestic consumers from the surge in international agricultural prices. These policies further increase the volatility of international prices, worsening the net food buyers’ situation in countries where no policies are applied. However, the negative impact of shocks to international agricultural prices on consumer food prices tends to be overestimated particularly in high-income countries, when domestic margin services are not taken into account. After improving the model’s ability to assess the effectiveness of agricultural border policies, our last article addresses the impact of increasing agricultural domestic support on food price transmission. We introduce two extensions to the standard GTAP framework, i.e., a better representation of incomplete price transmission based on econometric analyses, and an updated agricultural domestic support structure according to China’s current domestic policy. Simulation results show that under the assumption of incomplete food price transmission, net importing countries such as China experience less volatility than in the standard GTAP framework. Lowered price increases benefit domestic consumers but insulate producers from receiving higher selling prices. This result is consistent with the observations given during the price surge period from 2007 to 2011. When agricultural domestic support is assumed to increase to its de minimis threshold level, domestic producers have access to higher prices than in the previous simulation, and are thus incentivised to reach higher agricultural production. As a result, consumers potentially benefit from the further reduced price surges. China also exerts less demand pressure on the international agricultural market. In conclusion, this thesis raises the question of how variations in international agricultural price transmission affect domestic markets, especially under the interventions of border and domestic policies. In answering this question, we introduce several extensions to the standard GTAP framework in order to enhance the realism of the model in analysing food price transmission, so that the simulation results are more in line with empirical findings based on our econometric estimations. Our analyses contribute to the current literature with regard to three aspects. First, we extend the scope of current literature in explaining variations in food price transmission by applying a global sample of countries. Second, we evaluate the impact of border restrictions on food price transmission more accurately by accounting for domestic margin services explicitly in the GTAP model. Third, we improve the GTAP framework’s ability to evaluate the development of China’s agricultural domestic support by a detailed representation of incomplete price transmission and domestic structure in the model. We also call for better reconciliations of econometric estimations and CGE modelling through enhanced data availability, and further analyses of other less-distorting policies in stabilising agricultural domestic markets.